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Business model of Zara is complemented by high degree of vertical integrations and systematic value chain model. The value chain of the company focuses on systematic integration of various activities such as designing, manufacturing, raw material supply and distribution. The company emphasizes on superior customer relationship management in order to achieve competitive advantage over other competitors. Vertical integration has helped them to decrease turnaround times and achieve high degree of flexibility in operation. Zara always try to decrease stock in order to avoid fashion risk. Zara has recruited more than 250 professionals to supervise the product designing phase while each sales store of the company is complemented with more than 10,000 models of fashion apparel. Zara has established strong relationship with suppliers in order to speed up the value chain process. Superior relationship with suppliers helped Zara to decrease lead time to 14 days for any of their stores in the world. Spanish manufacturing sites of the company dispatch cloths twice a week internationally and such frequency helped them decrease risk associated with seasonality of fashion. Zara offers products for three segments such as men, women and children. Zara has expanded their distribution network in more than five hundred cities in the globe. 

 

Mintzberg has pointed out that companies need to create a product portfolio of different market share and growth rate in order to earn continuous cash flow from selling activities. Pettigrew has pointed out that companies can use growth share or Ansoff matrix to decrease competitive threat from low cost new entrants. In 2003, Mintzberg and Ghoshal also argued that BCG matrix is use useful way to select right product portfolio in accordance to market demand.    
Ansoff matrix focuses on product marketing concept and divides product selling into four box matrix.



Four corner stone of Ansoff matrix can be explained in the following manner.

  •  Companies can increase market penetration by using traditional products to existing market in order to increase business growth and decrease risk factor
  • Companies can develop new products for existing market to achieve higher market share
  • Companies launch existing product to new market in order to expand business in foreign shore
  • Companies can launch related or non-related new products to new market in order to achieve business growth

 

Strategic Choice for Zara


Choice

Rationale

Advantage

Disadvantage

Implementation

Market penetration strategy

The world is going through financial crisis and in this situation retaining existing customer is far more viable from financial perspective in comparison to investing in new market. Fluctuating EBITDA value of the company shows that they are not in a position to venture out in new market (check Appendix A).     

 

The strategic choice will decrease the risk associated producing redundant fashion material and venturing out in unknown market.

The strategic choice will not only limit market diversification for Zara but will give chance to competitors to copy Zara’s value chain integration.

Zara needs to encourage UK customers to buy more from them. This strategy will work against weak marketing strategy of competitors. Zara should focus more on swift transitions of forward and backward integration to beat the low cost retailer. Faster integration of value chain will
Give Zara the opportunity to pile up fresh stocks while their low cost competitor is still dealing with old stocks.

New Product Development

Developing new fashion apparel for existing market will decrease the risk associated with venturing in new market (risk in terms of lack of understanding of local market demand, low ROI in comparison to forecasted value and chance factors).

Competitors such as the low cost retailer will not copy easily diversified product line of the company.

Limited market expansion.

Strategic collaboration with designers will help the company to launch new fashion apparel in UK market.

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